But if you’re not living on passive income (yet), you exchange time for money (which is a terrible long-term plan.)

That means every time you make a purchase, you’re trading part of your life away.

The U.S. Census Bureau says that the average American worker earns roughly $50,000 per year, so let’s start with that as our Model Reader. Let’s imagine that you earn the national average. You have one of those fancy-pants 401(k) matches and health insurance, so your total compensation is $54,500.

Now let’s take two assumptions: One that’s straightforward, and one that’s unconventional.

Straightforward: A person earning $54,500 a year earns $27.25 per hour (working 40 hrs/week, 50 weeks/year). They lose 28% of their income to taxes, so their take-home pay is $19.62 per hour.

Filling a $50 tank of gas = 2.5 hours of their life.
Buying a $100 jacket = (Actually costs $108 after taxes) = 5.5 hours of their life

If you can shave $150 off your weekly expenses, you’ve given yourself every Friday off. You’ve saved an entire working day of your life, every week.

Unconventional Thinking About Money

Let’s get weird: Here’s the part where I argue that a person earning $54,500 is actually bringing home far less than $19.62 per hour — and therefore loses many more hours of their life with every purchase.

Imagine that you work from 8:30 a.m. to 5:30 p.m., with a one-hour break for lunch/errands. That’s an 8-hour workday. Normal enough, right?

Except that to start work at 8:30 a.m., you need to wake up at 7 a.m. From that moment forward, you’re preparing to go to work — pulling on fancy office clothes, suffering through your terrible commute. The same thing happens at 5:30 p.m., in reverse — you endure your terrible commute, then arrive home ready to iron your shirts.

As I detailed in this post, Can You Figure Out What This Woman Earns?, a person who works an 8-hour day is really working 12-13 hours per day, after you factor for all the “prep time” that goes into each workday. If you do any business travel, the numbers get even worse.

If you count “prep time” as part of the “Total Time Cost of Working,” you’re devoting 60 hours per week (12 hrs/day, 5 days/week) to working. Divide that by your salary, and you earn $18.16 per hour before taxes, or $13.07 per hour after taxes.

But wait! Next, subtract out the “Financial Cost of Working” from your gross income. After all, you need to buy work clothes, pay for gas, maybe get dry-cleaning. Your boss might expect you to answer email round-the-clock, so you get a $89/month smartphone in order to stay connected. You’re also expected to keep a printer, computer and perhaps a scanner at your house — none of which are tax-deductions, because you’re someone elses’ employee.

These expenses could easily knock you down to a total take-home pay of $11 an hour. And that doesn’t even touch on the ridiculous cost of childcare.

Sound extreme? I know. This is meant to shock you. You might not earn as much as you think. And when you spot something that’s “only” $25, it might cost 2-3 hours of your life.

Mental Shift > Complex Budgets

Like most issues in personal finance, the solution boils down to two things: Earn more, spend less.

Every time you buy something, ask yourself: “How many hours of my life did this cost?” That single mental shift, alone, will pare down your spending more than any complicated budget spreadsheet ever will.

On the other side of the coin, earning more will make the biggest difference in your life. Saving only goes so far, but it’s ultimately limited. Upping your earnings game, on the other hand, is limitless. Switch into a more lucrative career, start a side hustle, raise your rates. Start earning $150,000 a year, instead of $50,000.

Most importantly, invest. After you “up your earnings game,” shovel your newfound dough into index funds and rental properties. Investing is the ONLY way to break out of the unsustainable time-for-money exchange.

Comments

I spend very little because I primarily replace worn out things as necessary, although I do think about my hourly earnings when it comes to my time. I outsource a lot of things because it is a better use of my time.

I’ve read a lot of PF books, but I’ve actually never read that one. It’s been on my list for a long time — I’ve heard that it’s amazing. And based on your comment, I’m betting that I share the mentality of the authors.

This is how I think of every purchase. If I don’t feel an item is worth 1 hour of time I don’t buy it. Also, I’m a new reader to your site and I think your posts are great. At the beginning of July I came across your article about being in the Caribbean for 10 days and I’ve been hooked to your site since. Your posts give me confirmation that I don’t often receive from family and friends about unconventional ways of thinking about money.

This is especially good advice for those just out of college who might not have a good sense of spending and saving. I remember graduating college and getting my first full-time job for a whopping $38k per year and quickly seeing how much eating out and driving were costing me. I actually started thinking in these terms and that helped me to start putting a budget in place. “Ok, I just paid $37 for dinner and drinks with my friends. I make about $27k after taxes, which comes out to about $12.60 an hour. Wait, so I worked 3 hours just to pay for that meal? Never again!” 🙂

@Ben — Exactly!! I started doing this in high school, when I made $5.15 working at the drive-thru window of McDonalds (which is terrible, crappy work). I hated spending money, because I’d equate it to the hours I spent at the drive-thru window. (“That’s 3 hours working the drive-thru!”) In fact, I think that my frugality habits probably started/intensified as a result of that job. 🙂

We have plenty in common Paula. That’s exactly what I wrote about in my book, when eyeing prospective purchases. If I didn’t want to stack potatoes for three hours to pay for a new sweater, I wouldn’t buy the sweater. What you could also work into the math are interest costs, considering that so many people carry credit card balances.

Thanks Prudence! I think it’s important to realize how much time we spend either physically at work, or preparing to go to work. When I became self-employed (zero commute, work in pajamas), the difference in hours-per-day devoted to “preparing for work” was shocking.

Huge fan of yours! Love your post. It reminds me of Justin Timberlake’s movie “Just In Time” where currency is time and not money. Suggest your readers watch the movie! http://www.youtube.com/watch?v=efNzhEKm3w4

I love this perspective on determining the true utility of our purchases. Especially in today’s day and age, where so much of our purchasing power is “virtual”. There’s just so many steps between the earning process and the activity of spending, that I think we become numb of the effort that went into that earning.

On the one hand, I’ve said before that “time is NOT money,” and I continue to believe that. But on the other hand, “time is not money” is something that applies in an ideal world.

In reality, our world is made far less than ideal by our having to work to put food on the table and a roof overhead. And when you think in terms of having to do something in order to obtain symbolic pieces of paper and dross metal to trade for necessities and luxuries, and then you count up that time spent in forced labor (which is what work is for most of us) and in all the unpaid Brownian motion related to it, then indeed a money value attaches itself to one’s time.

That sure shook me to attention and after crunching some numbers the bitter truth dawned on me…there are some items that may have cost quite a huge chunk of my life and I don’t have more use for them right now 🙁
I think once you make the shift to counting the cost in terms of chunks of your life, you certainly become more cautious (in a very good way) about your spending.

You’re starting to talk my language! Great post, it’s great to see another ‘younger’ person planting seeds to grow into something great for themselves and others down the road. Looking forward to more of your thoughts as you progress!

It doesn’t work so well when your hourly rate is pretty high and you naturally don’t want a lot of stuff. Then thinking about it in terms of time gets you to spend more than you were happily spending before.

Once upon a time, in first or second year university, my friend had to explain this concept to her Mom, or at least part of it. Her Mom needed a new job and didn’t want to take one that was something like $2/hr less, but a ten minute drive, instead of a 45 min drive, plus parking, etc. My friend tried to show her that she was really the same-off, if not better-off.

Great post! I appreciate how your writing is straight forward and to the point. This post puts into perspective how spending for “small” things steals our time — when we’re often thinking we “deserve” them because we work!

I read about this in “Your Money, or Your Life.” Those authors made a strong case for figuring out the true cost of things by the hour. I haven’t worked out my true hourly wage, but it’s probably about 1/2 of what I actually make. The only thing is, I love what I do, so if I factor that into the equation, maybe it’s not as reduced. However, earning more is one way to combat this dismal hourly wage. Taking on side jobs and spending less helps!

When I was earning money fast, I paid for tons of stuff….the cost was really no object vs. the time I was saving. Now that I’m earning less, I find that frugality is coming back into play! Earn less….spend much less.

Interesting concept to subtract the costs of commuting, wardrobe, etc.
I often use the same reasoning in a slightly different way.

Unfortunately, I just experienced an unexpected layoff. The savings I’ve accrued – I think of in terms of “additional months of future expenses”. Now that I have some unexpected free time, I have the money to live as I normally would, with slightly more frugality. The weight of a job loss is much lower knowing that I have made sound decisions and have a financial safety net.

It really annoys me when people say, “It’s only x amount of dollars”. I almost equate it to how much of work hours that would be or compare it to one of my fixed payments. (That _____ costs half of my car payment).

OMYGODDD! Never thought of this before! time to change the point of view. this article and blog is slapping myself hard. Never realize what am I missing for all these years until I read these posts. Oh no…